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An anonymous reader writes: If you're involved in the free and open-source software movement — especially in the United States — you may want to read through this, as long as it may seem. It appears that the United States' Internal Revenue Service has strongly shifted its views of free and open-source software, and to the detriment of the movement, in my opinion. From the article: "The IRS reasons that since Yorba’s open source software may be used for any purpose, Yorba is not a charity. Consider all the for-profit and non-charitable ways the Apache server is used; I’d still argue Apache is a charitable organization. (What else could it be?) There’s a charitable organization here in San Francisco that plants trees throughout the city for the benefit of all. If one of their tree’s shade falls on a cafe table and cools the cafe’s patrons as they enjoy their espressos, does that mean the tree-planting organization is no longer a charity?"

Tax em all! As the US goes broke, anything and everything than can be changed to tax people more will be changed (yes, even the rich will be taxed more when we're broke enough, not that that will help much). What? Spend less instead? Which politician is going to give up those wonderful tax dollars flowing to his donors? The left? The right? Didn't think so.

The IRS and corporations have this in common: they want everything to be measured in terms of money, and have no interest in anything that can't be measured in money. Consequently, they mistrust and dislike anything that is exchanged freely: they see it as theft from them, as they are entitled to a cut of every transaction.

Let's barter informally as much as we can, just to spite the bastards.

The examples you are giving are not the right ones. For example, a educational institution could be non-profit or for profit. The right examples would be Profit, Non-Profit, and Not-For-Profit.

Without reading the article I am going to guess Not-For Profit which has some internal sense. Not-For-Profits are when people come together to pull their resources. Examples would be Co-ops and Credit Unions. I would think farm co-ops would be semi on point. Famers (for profits) come together to pull their resources t

I can see why the IRS is having a hard time taking claims of being a nonprofit or public-benefit company seriously when that's examined. It's kind of taking the "how to make money off FOSS" instructions constantly published in the community at face value.

The only problem with your rant is the fact that an entity that looks like a conventional looking company can in-fact be a non-profit enterprise. Hospitals notably fall into this category and they hardly give stuff away for free. They are some of the most notorious high way robbers on the planet.

This is a situation where the "quacks like a duck" legal principle doesn't quite work out.

What foundations do that? I agree that they are not non-profits if they are charging support or consulting fees. Usually they don't do that.

Excuse me but that is exactly what "Based on ability to pay means", if they can squeeze a "charging support or consulting fees" out of you they do a suprising amount of time. 501(c)(3)'s are some of the biggest rackets there are; but never count on the USG to not throw out the baby with the bath water.

For-profit ecosystems spring up around many charities; everything from environmentalism to religions spawn such commercial activities around them.

The issue that should be at the heart of the matter is whether some person or company specifically and exclusively stands to profit from the charities work. As long as anyone who wants to can engage in commercial activities related to the work, such as commercial sales of religious texts and figures, sell eco friendly products, use charity relations in branding an

So... a non lawyer got a request from the IRS to explain his charitable status, they decided he wasn't a charity, and now he's posting to a blog that the entire open source world is coming to an end? I think dude needs to spend more time getting a lawyer and less time posting to slashdot.

I HATE the IRS with a passion. This stuff should be easy. But the fact of the matter is, it's not. You need legal representation if you're going to be a 501(c)

Then we have this: "We have no plans to appeal their decision."ok... so what's the point of this post? If you're agreeing with them, I don't get it. If you're not agreeing with them, but just rolling over, then you deserve what you get.

For the same reason I usually hate LEO with a passion. They don't write the laws, nor make laws convoluted. That's the job of the legislative branch (local, state, or federal). They just are power trippy and decide to interpret and enforce the law however they see fit ultimately letting a court decide your fate...after a long, expensive, drawn out process that is suppose to be innocent-until-proven-guilty but often is more the opposite.

I've had some dealings with the IRS (mostly due to my mistakes) and have found them to be cordial and fair. (I was amused by the letter that said, yes, I was right, and here's how to appeal that decision.)

If one of their treeâ(TM)s shade falls on a cafe table and cools the cafeâ(TM)s patrons as they enjoy their espressos, does that mean the tree-planting organization is no longer a charity?

If the cafe, through it's donation, is able to direct where the charity puts it's trees AND the charity places the tree in a location solely for the benefit of the cafe, then that charity is (in my mind) no longer a charity, it is at least a part-time landscaping firm.

So, let's say a company (IBM) "donates" code that allows an Open Source software package support some unique (patented) feature on their hardware.

Is that charity, or a marketing expense to help the company sell more hardware?

Suppose that I give a group money to house homeless people so that they don't have to huddle around my air vents in the winter. Does that then make the homeless support group a commercial entity?? Charitable groups OFTEN support purposes beyond their direct purpose. That doesn't make them non-charitable... I mean how much do broadcastes make by broadcasting NCAA games?

You're splitting hairs here -- Most people give donations to charitable orginaizations because it, in some way or form, supports thei

Hmmmmm.... would this benefit corporate interests? When the government makes any decision that is the only question that needs to be asked. The only time the answer is in doubt is if there are no corporate interests or the corporate interests are exactly balanced.

So while I agree with the sentiment about this being deeply unfair, this is not thereal issue. If anyone wants to be upset about this issue and is willing to do something about it then join the movement to get corporate money out of politics; fu

In all seriousness I agree. And comparing this guy with the Apache Foundation is wrong, not because of his summary of the issue, but for exactly the reason you state. The Apache Foundation has corporate backers with corporate interests. Heck, isn't even Microsoft a supporter?

They're not going to challenge the Apache Foundation's 501 status because it's too well established, has a lot of powerful backers and provides wealth and benefit to the corporate community

At MIT, lot of research is done and published and the results can be used for anything including making weapons of mass destruction by terrorist and dictators. How come MIT research is tax exempt? In fact, both MIT and Yorba are involved in doing things which are good for the whole humanity without directly profiting from it and hence both should qualify EQUALLY. If one is banned then the other should be as well. In fact MIT and other educational institutions often directly work with commercial organization

While this might seem to suck, I know from first-hand inquiries that it is not possible to allow a charitable organization such as a church, for example, that has a kitchen to allow their kitchen to be used even by one of its own members for any kind of commercial purpose, even if the church receives absolutely *NO* benefit from said use. Allowing it would jeopardize the church's tax-exempt status, so it's not allowed.

Really, if you want to be a charity, then you can't allow your resources to be used by people with commercial interests. Sucks for open source organizations that want to act as charities, and I can see it being detrimental for some donations because I know that getting a tax exemption does motivate some people to donate.

But bear in mind that if tax-exemption were really the only reason or even the primary reason why people might donate to a cause or organization that they may believe in, it's highly unlikely that something like crowdfunding would ever work, and we have plenty of evidence to show that it does.

Really, if you want to be a charity, then you can't allow your resources to be used by people with commercial interests.

And if someone gets rich using knowledge from an educational book published by a charity, does that invalidate the charity? What are "resources" in this case? I'd think the resource of a charity like this is the time people invest into it, not the results themselves, or their transitive implications.

How many charities raise money for curing cancer or raising money for alzheimer's etc... are not any cures and treatments arising from the research they fund going to be commercialized at least in some way? Someone is going to make the pills and for profit. Someone is going to bill the insurance companies when they prescribe them, etc, etc.

I own a small company that works with Drupal. I am a member of the Drupal Foundation and give as generously as possible to their events.

Similar determinations have been made by the IRS before and challenged successfully. It is important that Yorba stands up for themselves on this matter and establish the scientific and educational validity of their claim to 501 c3 status.

There is an important point in the lifecycle of every open source project, where it goes from being a small hobby to something having an ecosystem that must be managed. It's essential that there is a way to provide fiscal support for groups springing up around the management of these projects without creating a tax burden.

The IRS judgement pertains really seems to only include an established software project, and not one that is supported by a small community. I am not sure there is a way for them to make a determination between the two. IANAL, but I am sure this is important in distinguishing the legitimacy of 501c3 claims.

My read of this is that they applied as a charity, but the IRS's definition of a charity requires that you be serving a distinct, disadvantaged group of people. A quick look at the software that Yorba produces (http://yorba.org), does not lead me to believe that their software would particularly benefit any specific disadvantaged groups more than other people.

So by the rules that the IRS is working on, it does appear that they do not qualify as a charity. And to be honest, this is a correct definition, they

My read of this is that they applied as a charity, but the IRS's definition of a charity requires that you be serving a distinct, disadvantaged group of people. A quick look at the software that Yorba produces (http://yorba.org), does not lead me to believe that their software would particularly benefit any specific disadvantaged groups more than other people.

So by the rules that the IRS is working on, it does appear that they do not qualify as a charity. And to be honest, this is a correct definition, they are not running a charity. Now there is a valid question about whether there should be a method for them to run a non-profit without being taxes, but they are not a charity.

There are many kinds of Charitable organizations. But 501(c)3 does not necessarily mean a Charity as you describe, though it does allow you to take donations.
Most of the 501(c) organizations are pretty specific in what they may serve; 501(c)3 is the exception in that it is a lot more general.
The Wikipedia Article on 501(c) organizations [wikipedia.org] is actually pretty good. Of course, you can also go directly to the IRS information [irs.gov] too, but I find the Wikipedia article to be easier to read.

501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

They applied under charity, education, and science. Scientific seems the best bet. By providing source code you could say they are advancing computer science. But it is a stretch. The IRS instead saw Yorba as a provider of free stuff. Free stuff is nice but it isnt' advancing science or education. Free stuff is only charity when it is provided to a disadvantaged group of people according to the IRS. Note that environmental activism does not appear in that list. I don't think planting trees would quilify at all as a non profit. (unless it was done in a disavantaged neighborhood)

501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

IRS views charity as something sepperate from religion, the arts(literary), and education. I think they should of applied under literary instead of charity/science/education. They can say their code/tools are works of art for the public good.

When I was on a board that was incorporating a not for profit organization it was enlightening to hear that while 501(c)3s dominate the conversation, they aren't appropriate for most causes. Part of my understanding is that a 501(c)3 is a public, mutual benefit corporation where all assets are actually owned by the public, should push come to shove. It seems like for structure, ownership, and purpose, something like a 501(c)4 or (c)8 would be more appropriate. Of course, 501(c)3 has been baked into so many things, that there are orgs that will not donate unless you have a (c)3, even though there are other tax-exempt designations that also give you a break. Of course, IANAL, YMMV, Your state sucks and works differently, etc, etc.

Part of my understanding is that a 501(c)3 is a public, mutual benefit corporation where all assets are actually owned by the public, should push come to shove.

I'm sorry, but you're confused -- that's not correct at all. The assets of a 501(c)3 have to be transferred to another exempt organization if the organization shuts down, but they are in no way owned by the public. We had that baked into our articles of incorporation [free-spirit.org] but I'm not sure if that's a requirement.

If all the organization does is release code under an open source license, then they're not collecting money. If the organization is charging for services relating to that code, then there's something to tax.

If my garage inflates tires, I'm using a free resource (air). My garage might even inflate tires for free (charity) to get people to come in. That doesn't make my garage a charity.

If the organization doesn't collect money (or turn a profit), then there will be no income taxes to pay. It sounds like

The IRS isn't necessarily saying Yorba can't function as a not-for-profit, but that it doesn't qualify as one under section 501c3. There are other forms of not for profits that may be more applicable. Personally, I would never have thought of Yorba or the other entities listed in the summary as charities, not for profits, yes, just not a charity. The two are not interchangeable terms.

Without some reasonable crackdown, anyone could set up a 501(c)3 that donates software to various entities and - in an unrelated coincidence - receives donations from those same entities (or related entities).

To put it more concretely, Yorba receives money for software development - often but not always by the same people who use the software. This is a normal activity of for-profit companies. You aren't allowed to take a for-profit company, rename "license fees" as "donations", and claim tax exempt statu

Developing Open Source Software Is An Activity Ordinarily Carried On As An Incident To Commercial Or Industrial Operations

In a nutshell, Yorba failed to properly differentiate themselves from a traditional for-profit company. As a for-profit software company owner, I'd say that that's a fair statement. If Yorba was actively engaging in outreach to provide free software to schools (and then incidentally released it to the public), again that would be different.

When you apply for 501(c)3 status you're asking that the general public subsidize your business. Its not unreasonable to require a significant burden of proof before such a federal subsidy is granted.

The logic used by the IRS is dubious and daunting. That someone could potentially use something you are giving away for a commercial purpose... does not make sense as reason to deny exemption status.

The propagating effects could be devastating, even beyond open source software. This is basically a blank cheque for them to deny exemption arbitrarily and extrajudicially; if you dig far enough and raise the threshold for degrees of separation as high as you want, you could come up literally any reason you wa

SoylentNews has decided to avoid non-profit status due to the demands it puts on the organisation [soylentnews.org], so they're now trying to set up as a slightly more normal "we don't actually want to make money" benefit corporation.

A couple points - first off, there were hundreds of Patriot/Tea Party groups that applied, not just one monolithic Tea Party organization - each application was unique and individual.

I'm not sure how many of what you refer to as 'Occupy' applications were submitted, by your use I assume it was one.

The Occupy group that got a denial is actually years ahead (literally) of several dozen Patriot/Tea Party organizations that are still waiting YEARS LATER for a decision up or down on their application... So what?

It doesn't "prove" anything that the emails were destroyed. The legal principle is that it can be assumed that there was incriminating evidence in the emails. One of the questions, though, is whether due dilligence was done to secure the emails in question. It is quite possible that the drives really did all die. Manufacturers have bad batches of drives from time to time. It's possible that a bad batch was purchased by the IRS.

I haven't been following that particular escapade. All I will say is that

Like any tax authority anywhere in the world, the first thing that the industrialist and "owning" classes do is to minimise their own liabilities and obstruct auditing and regulation (off-shoring, tax havens, and shell companies being examples). The next thing is to increase the liabilities of any emerging competitors and possible competitors, i.e. everyone who isn't already a huge corporation and that they can't buy to add to their portfolios (FOSS means no IP portfolios to add by acquisition as Oracle fou

Hush now, if a tax law has been approved, both agreed to it. Given that they can't agree on the time of day, but have agreed to focus on 501(c), we can assume this annoys all the rich people, not just some ideological faction of them.

Most slashdotter's are too brainwashed by the liberal media for "hope and change" that they don't realize their future is being stolen from them.
FairTax would vastly reduce the problems of crony capitalism and special interests. It will not happen until the sheeple stop allowing themselves to be sheared.

Trust me, the Fair Tax will come with its own set of problems. The IRS would still be necessary, there would still be complicated regulations (on what counts as income, if nothing else), and there will be politics related.

You don't absolutely need a lawyer, but you do have to read the docs carefully and structure your answers carefully to give them what they need. If you are incapable of this, then, yes, you should get a lawyer.

I say this as one who just last year successfully set up a 501(c)3 for a community band, receiving a favorable determination letter, with no request for follow-up, in under 4 calendar months (which included the short government shutdown).